Saturday, April 14, 2012

FT: Romania: struggling to privatise

The abruptly cancelled privatisation of Romania’s largest copper mine is indicative of the challenges the country faces in selling off state assets. But while the process is dogged by controversy and disagreements over procedure, new momentum may be growing behind the liberalisation of state companies.

Last weekend, Reuters reported that the Romanian government had annulled the sale of Cupru Min Abrud to Canada’s Roman Copper, just a day after the Canadian company claims it had agreed to terms and conditions. Roman Copper won the tender to purchase Cupru Min for €200.8m in March. Cupru Min has estimated reserves of 900,000 tonnes of copper, 60 per cent of Romania’s total reserves, although output is low at present.

Officials said the deal foundered because agreement could not be reached on government terms added to the contract late in the process. These set conditions in three areas: transparency; swift payment; and that Roman Copper set aside more than €30m for “environmental investment”. Roman said it was willing to meet the new terms despite their late introduction. But the government said the deal was off.

Liviu Voinea, a Romanian economist, told beyondbrics the reason for cancellation was a realisation that the deal was not in Romania’s interests. He said the new terms should have been in the original tender and the country had been too willing to surrender its resources cheaply, to purchasers of dubious suitability. “The privatisation process is rotten,” he said.

The decision may also result from political pressure on an unpopular government in an election year, egged on by the economy ministry to pull the plug.

The episode has focused attention on Romania’s willingness to follow through with its privatisation programme, which has been at best intermittent over the past two decades. Backtracking on the Cupru Min deal is, as Voinea notes, further “bad marketing” for the process.

Romania pledged sell stakes in a number of state-owned companies, partly to meet loan conditions from the IMF, which has supported the cash-strapped country on the promise that it will shed some of the weight of bulky public businesses. With the Fund’s encouragement, stakes of 10 to 20 per cent in a number of enterprises, mostly in the energy and transport sectors, are due to be offered on the Bucharest Stock Exchange (BVB).

Last year, the government botched the sale of Petrom, an oil company, by overpricing its shares. But the sale of a 15 per cent stake in electricity distribution firm Transelectrica through a secondary public offering on March 27 was more than 50 per cent oversubscribed, raising around €38m.

Lucian Anghel, chief economist at BCR, the country’s biggest bank, and recently appointed chairman of the BVB – which stands to benefit from the listing of state companies – takes an upbeat view. He told beyondbrics the Cupru Min termination could even be a sign that the government is at last making the right decisions on privatisation.

“The government is giving a sign to international markets that we are moving in the right direction,” Anghel said. “From the Transelectrica offering, the first of its kind in more than four years, it is clear that Romania is learning from its experience and finding a new way to finance its economy through the stock exchange.”

Critics remain sceptical about the benefits of part-privatisation on the BVB. “A 10 per cent share sale won’t help capitalise firms as the money will be used to reduce the deficit, and it won’t bring know-how,” says Voinea.

But Anghel is confident that public offerings will now pick up pace, with energy generation firm Hidroelectrica expected to be particularly lucrative. A new listing of Petrom is also being lined up. The offerings should bring much-needed liquidity and activity to the BVB. Anghel and (more quietly) many in the government also see them as the first step towards further privatisation when the time is right.

“We need to take a gradual approach in this economic environment, and in an election year,” Anghel says.

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